Tax and Spend 3

The Politics of Tax and Spend 3

updated 11 July 2018

What are we trying to do?

Commerce and industry are the wealth generators of our country. In some countries agriculture is the main wealth generator.

How do we use taxation and spending to help the economy?

We can work hard to build infrastructure, whether it be railways roads or airports. The Republican Party in America originally came together to campaign for improved infrastructure, to help agriculture and commerce and industry.

President Eisenhower built the Interstate highway system, an investment that has paid for itself many times over.

The US government for many years had a government funded outreach system of agriculture education for farmers, helping sometimes poorly educated farmers to improve their farming techniques.

Can we achieve more with our limited public money by giving subsidies to private companies to build infrastructure instead, so that the infrastructure is built with mainly private money?

The British Labour Government Private Finance Initiative allowed Labour to commission huge amounts of building all over the country, using private sector money rather than public money. Alas it is now time to pay the rent, and the British state will end up spending huge amounts on renting buildings we could have built ourselves and actually own.

We can give tax breaks to “green” or new industries. We can tax petrol users more heavily.

Often we need a combination of carrot and stick to achieve our ends. The Construction Industry Levy Board mentioned in “Tax and Spend 1” the first article is a good example.

Raising child benefit can make it less expensive to have children, and even profitable. If we wish to grow our population, that is one way to do it.

A cheaper way may be to allow foreigners to immigrate. When Australia wished to grow its population after World War 2 Australia offered very cheap fares to help British people to immigrate.

If we believe that science and engineering are the way forward, we have to invest in our schools and universities so that they have the laboratories workshops and machines to teach people on – and we will have to subsidise the teaching because teaching science and engineering is much more expensive than Arts subjects.

The Keynesian argument that spending is the way out of recession seems to be broadly right. As a practical point, a construction worker in work is generally not receiving benefit and is paying tax and national insurance – and he is creating a capital asset. The same man unemployed is not paying tax and national insurance. He is receiving benefits. He is creating nothing. For not much more than it costs to keep him idle we can have something of value from him.

Local authorities used to have an important role employing people who were at a disadvantage in the labour market because of poor education, borderline low intelligence, or poor social skills. Working, they had pride in themselves and they did contribute to society. Now many of these folk are laid off contributing nothing. One has to ask whether there is any saving to the overall public purse.

Healthy Public Finances

The health of the public finances is closely related to the performance of the economy. If unemployment is low, and tax income is high, the public finances should be good. If unemployment is high, and tax income is reduced, the public finances will be bad. It’s not rocket science.

A doctor can deal with a patient’s raging temperature by dunking the patient in cold water repeatedly. One would question whether this was the best treatment. The cons and neo-cons often look like the demented doctor!

The Opportunity

The mix between collecting taxes and the spending of the taxes raised gives every government the opportunity to try to move the country in the direction it wishes.